Four years after the passage of Dodd-Frank, a reminder that bankruptcy works—even for big financial houses.

Four years ago, Democrats enacted the Dodd-Frank law on the theory that some banks are too big to fail and that regulators have the wisdom to identify which ones. Today the company that disproved that theory is back in the news.

For most of the big banks that were bailed out during the crisis of 2008, the arguments can never be completely resolved over whether federal assistance was necessary. That's because taxpayers were not allowed...